Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/74969 
Year of Publication: 
2005
Series/Report no.: 
LICOS Discussion Paper No. 162
Publisher: 
Katholieke Universiteit Leuven, LICOS Centre for Transition Economics, Leuven
Abstract: 
Using data on 451 Chinese privatizations over the period 1994-2002, this paper empirically investigates the firm and stock market characteristics that detfirmine the size of the portion of new shares sold to the general public and underpricing at SIP-time. We find that poor perfirmance and financing constraints, reflected by a low profitability and high leverage, mainly drive public share allocation. Also, the government widens ownership to a larger extent in firms that receive substantial subsidies. By contrast, stock market returns pre-SIP and variables capturing the firm's growth opportunities do not positively affect public share allocation. Yet, in firms with a low market-to-book ratio, the government is more likely to relinquish its majority stake at SIP-time. The detfirminants of underpricing further illustrate the uniqueness of SIPs compared to private-firm IPOs. Overall, there is little evidence that infirmation asymmetries regarding firm value influence first-day returns whereas stock market conditions have an impact. After accounting for the endogeneity of the public share allocation decision, we find that the fraction of ownership divested is significantly positively related to underpricing.
Subjects: 
privatization
motives for going public
government divestment
underpricing
JEL: 
G32
G38
Document Type: 
Working Paper

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